October 15, 2013

TPP, TTIP and Getting America's Competitiveness Back on Track
Posted by Bill R. French

By Marcela Heywood

Last week’s Asia-Pacific Economic Cooperation summit in Bali, Indonesia
marked further progress for the Trans-Pacific Partnership (TPP) and set
an ambitious goal to finish negotiations by the end of the year. Although the
U.S. government shutdown – and President Obama’s absence in Bali – did not
hinder the trade talks, it did call America’s credibility into question.
Government shutdown could threaten both TPP and Transatlantic Trade and
Investment Partnership (TTIP) negotiations by displaying uncertainty in U.S.
economic and foreign policy priorities. Congress needs to reach an agreement
and prioritize TPP and TTIP, as they are necessary policy initiatives to boost
American competitiveness, stimulate the economy, and exert soft power to create
and solidify American norms overseas.

21st century foreign policy must recognize the increasingly
economic nature of competitiveness. Globalization has created an environment
where “economic concerns typically -- but not always -- outweigh
traditional military imperatives.” Over the last 10 years, world powers, like
China and other recent leaders, have established power on economic rather than
military capabilities, showing the importance of a dynamic economy. U.S.
competitiveness depends on our ability to lead with the economy at the center
of our geopolitical strategy while maintaining military strength.

American competitiveness
has declined over the past decade, threatening the economy as well as our
national security. The international power structure is shifting as economic
growth has surged in developing countries. Since 2008, American economic
competitiveness has fallen
from its historically consistent 1st place ranking to a 7th
place ranking for 2012-2013. In addition, decreasing FDI inflows to the U.S.
mark falling competitiveness, because FDI flows primarily go
to multinational companies, which often fuel innovation.

It would be a mistake to consider this trend in isolation from national
security. Declining competitiveness undercuts
America’s credibility by threatening the economic foundation of American power,
and over the long-term may undermine U.S. military capabilities as the margin
of American technological leadership decreases.

Historically, U.S. trade policy has supported U.S. economic competitiveness
through a long-term attempt to liberalize global trade in which decreased
barriers to markets and increased investment flows benefits the innovative and
productive advantages of American enterprise.
The WTO’s Doha round would be a capstone to this trade agenda, but its
failure leaves a gap in America’s trade strategy. It is this gap that can – and
should – be filled by TPP and TTIP. These deals offer an advantage unique to
the United States by placing the U.S. at the center of two distinct agreements,
establishing free trade and encouraging investment across both the Atlantic and
Pacific. While TPP and TTIP do not offer the same benefits as Doha, the
agreements are a contemporary strategy for the U.S. to regain competitiveness
in light of the WTO stalemate.

TPP and TTIP would lead to domestic employment and business growth,
providing a budget-neutral stimulus to the economy. The Asia-Pacific region accounts
for about 40 percent of global trade and over 60 percent of U.S. trade, while
trade between the U.S.
and EU accounts for nearly half of global economic output. Together, TPP and TTIP would include
thirty-nine countries that account for over 60 percent of world trade.
Liberalizing this quantity of trade is significant because the association
between employment growth and import growth is positive.
Further, increased exports through improved market access leads to profits for
business.

According to the Centre
for Economic Policy Research in London, an ambitious deal that eliminates
U.S.-EU tariffs and cuts non-tariff barriers by 25% would boost
American GDP by 0.8%; using the conservative conversion
that a 1% increase in GDP corresponds to an additional 1 million jobs, passing
an ambitious TTIP agreement could create up to 800,000 new jobs alone. In
addition TPP and TTIP will better equip the U.S. to compete in the global
marketplace through easier expansion into foreign markets, easier accessibility
to American products from abroad, and innovation from increased competition.

TPP and TTIP also offer security benefits by creating economic
partnerships that can strengthen diplomatic relationships and shape the
international system in favor of American interests. For example, TPP led to a
meeting between President Obama and Vietnamese President Truong Tan Sang this
summer – only the second meeting between the U.S. and Vietnam since relations
resumed in 1995 – marking a “’steady progression
and strengthening of the relationship’…to pursue deeper cooperation in a range
of areas, including trade, commerce, security and other issues.” TTIP creates
the economic base to allow the U.S. and EU to address global challenges and “shape
a open rules-based role” in the world. In addition, the two agreements will
lead to economic prosperity in member nations, contributing to social stability
by increased employment rates, providing more resources for social safety nets,
and less incentive for corruption in government. Such social factors in other
countries are critical for American security, creating a more predictable
global environment.

Further, TPP and TTIP offer an opportunity to apply soft power by
allowing the U.S. to influence standards and establish norms in the
Asia-Pacific, while simultaneously deepening shared norms between the U.S. and
EU. This use of soft power is critical for long-term goals, because
establishing and deepening norms is essential for global market consistency. For example, IP laws are necessary to protect
the ideas of entrepreneurs so that people will be encouraged to innovate and
know they’ll receive credit for their thinking; cybersecurity provisions in TPP
and TTIP are important to prevent economic espionage that unfairly undermines
businesses, which will lead to trust in multilateral endeavors; and an
e-commerce framework will enhance
the viability of a digital economy, modernizing and standardizing
traditional commercial trade practices across the Atlantic and Pacific. Collectively, such provisions will create a
benchmark that can be used as a stepping-stone to further multilateral
agreements, perhaps even reviving the hope of a comprehensive global trade
framework in the far future.

Moreover, Benefits of the TPP could entice non-members, like China, to
consider adopting higher standards in order to participate. Although there is
concern that TPP intentionally excludes China, its entry is possible given
TPP’s accession
mechanism; whether China joins will depend on the preparedness
of its domestic economy for high-standard regulations. Currently, chances of
Chinese accession are slim because of absent standards across multiple sectors
including the aforementioned examples of IP, cybersecurity, and e-commerce – a
lack of Chinese IP law and cybersecurity measures threatens business security,
and booming e-commerce calls for the examination of consumer protection,
authenticity, and customs regulations in the digital sphere.

The future of TTP and TTIP remains to be seen, and their successful
negotiations and ratifications by member states is far from certain.
Nonetheless, they must be viewed as the contemporary solution to international
trade and provide a serious strategic alternative to the WTO stalemate,
struggling American competitiveness and a sluggish domestic economy in the face
of considerable uncertainty regarding the structure of the international system
in the 21st century.

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